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‘Avoid Tick Box Approach’ Warns FCA to P2P Lending Firms

The U.K. financial regulator finally has an update on its regulations for peer to peer lending. They were published earlier this month. So, what does this update mean for U.K’s financial industry its investors?

One key takeaway from the update on P2P lending regulations is the introduction of marketing restrictions. Also, the test of appropriateness for the investors. This will now restrict platforms to high net-worth individuals. They are people who receive regular investment advice or unwilling to invest more than 10% of their portfolio in P2P loans.

December 9, 2019 is the Deadline

All peer to peer lending platforms have to change their processes as per the Financial Conduct Authority (FCA). Further, they will have to provide the appropriateness tests to fresh investors. December 9, 2019 is the deadline.

While expecting the change of rules, the industry has some concerns about the cost associated with complying with the new regulations. What may be comparatively easy for big firms to implement may not be so straightforward for smaller companies.

The financial industry is not new to the introduction of these appropriateness tests. These tests are already a part of other key segments such as equity crowd-funding and crowd bonds.

The motive behind the introduction of these appropriateness tests is to make investors fully aware of risks associated with peer to peer lending. The FCA wants to assess the understanding of investors about the relationship between the platform and the borrower with these tests. The FCA also wants to check the investor knowledge about the shortage of protection under the Financial Services Compensation Scheme, and the actual returns that may vary.

While complying with these new rules, the FCA has warned the platforms to avoid the ‘tick-box approach’. It is encouraging firms to put some heart in creating precise questions and offer more transparency to the investors.

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